Useful lessons in the battle for startups

Worcester could learn some useful lessons from the battle between the Bay Area and Boston for the top position in the startup game. The keys: Attract top startup talent and venture capitalists, get them to connect, and motivate the talent to stick with the startup until it succeeds.

That's because if you measure leadership by the amount of venture capital headed toward a region, Silicon Valley's position as the king of America's high tech startup hill — with $8.2 billion in venture capital invested in the first three quarters of 2012 (nearly four times Boston's second-place position) — is well-established.

But the success of the Silicon Valley startup common may contain the seeds of its own demise. That's because tech workers there demand high salaries and quick payback on their stock options. If that doesn't happen, they quit and try again. By contrast, in Boston tech talent tends to stick with a startup until it succeeds.

Waltham-based Actifio — a company that makes a device that delivers an enormous return on investment to companies that store, manage and protect their growing collection of corporate data — offers useful insights on this.

As Actifio's chief marketing officer, Mike Troiano explained in a December interview that, traditionally, the Boston startup common has been very different than Silicon Valley's. Boston-based startups have tended to emerge from universities like MIT and Harvard as technological innovations in search of markets.

By contrast, Silicon Valley companies often get started by people who work at a pillar company in the Valley who get an up-close look at a big, unsolved customer problem and start a company to tap the new market opportunity.

As Mr. Troiano explained, “You talk to two different kinds of entrepreneurs: Guys who have problems and are looking for solutions, and guys that have solutions that are looking for problems.”

The latter is typical of the West Coast. As Mr. Troiano said, “In a classically West Coast model, someone puts their time in at a Google or an Oracle, they become intimate with a customer problem that's not being addressed in the current architecture, so they start a company to solve that problem.”

The East Coast has tended to take the technology-first approach. According to Mr. Troiano, “On the East Coast, more often you have some technology incubated at MIT or Harvard, and that technology is unleashed on the world in search of a customer base.”

In the past, startups could get access to deep technical resources and capital they needed much more quickly in Silicon Valley. That's because those resources were closer by in the Bay Area but more dispersed in the land of the bean and the cod. According to Mr. Troiano, in Boston, “It was harder for the talent and capital to come together, because both were so geographically dispersed across the city, Cambridge, 128 and 495.”

But Mr. Troiano believes that Boston has recently overcome that challenge due to a concentration of startups and venture capital providers operating closer together in Waltham, Cambridge's Kendall Square and Boston's Seaport District.

As he explained, “One of the things that's changed a lot in the last four to five years is now you can find someone who has deep domain expertise just about anywhere in just about any domain and that person is likely to help you. You're way more likely to run into that person from a mutual contact, or community social event. And when you get to that person, they're more likely to help you.”

Boston's startup common is getting better. As Mr. Troiano pointed out, Actifio's chief executive officer, Ash Ashutosh, “is more of a West Coast-style entrepreneur. He's built a career formulating new solutions to a customer problem he knows intimately well, and his personal network includes connections with people behind the first generation of great local enterprise technology companies like Data General, Digital Equipment, and EMC.”

But Boston has added a new branch that is quite similar to San Francisco, in that it attracts young technology talent that enjoys living and working in an urban setting. As Mr. Troiano explained, “What you have going on in Kendall Square and in the Seaport today is a much larger and more inter-connected network of thriving startups like Hubspot, Gemvara and Wayfair. These are companies that arose through much more of a (Palo Alto, Calif.) University Avenue or Sand Hill Road kind of social context.”

Mr. Ashutosh sees Boston enjoying an advantage over Silicon Valley when it comes to building startups that sell technology to business and government. As he said, “I think there is a depth especially in the enterprise sector, both of talent and almost the tenacity in this space, that is not so prevalent in the West Coast.”

Actifio is able to attract and retain world-class talent because it is clearly going after a big opportunity and is growing fast. As he said, Actifio “attracts some of the best talent in the world which is right around here. Even more importantly, (we retain) that talent; with the exception of two people we lost at the beginning, our turnover is literally zero.”

And Mr. Ashutosh believes that this gives Actifio a competitive advantage.

“That is huge because if I am trying to build a company for a long term, the last thing I want to do is worry about constant churn of people coming in and out (which is so common with West Coast companies),” he said.

Mr. Ashutosh believes that once it gets off the runway, Boston is the best place for a startup.

“If you can get through the prototype, customer base and expansion phases, Boston is absolutely the best place to build it,” he said.

He argued, “You've got phenomenal talent, you've got a culture and work ethic, and you've got the capital, the pillar companies, the universities, a lot of mentoring, a ton of investment, and a set of values to stick by and get it all the way through.”

And he thinks the West Coast is vulnerable on that dimension. Mr. Ashutosh pointed out, “You can look at any successful West Coast company: Facebook, half the founders are gone. Twitter, I don't know if any of the original founders are left.”

Worcester has a long way to go, but it could learn from the startup commons in Boston and the Bay Area.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, teaches business strategy, and is the author of 11 books – most recently, “Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision.” His column runs Sundays and Wednesdays on telegram.com. His email address is peter@petercohan.com.